(Kitco News) – Gold has once again proven that it is the ultimate momentum asset. The precious metal’s rally to all-time highs above $2,200 an ounce in the futures market has been driven by unprecedented bullish speculative interest from hedge funds, according to the latest data from the Commodity Futures Trading Commission.
The CFTC’s disaggregated Commitments of Traders report for the week ending March 5 showed money managers increased their speculative gross long positions in Comex gold futures by 41,221 contracts to 145,106. At the same time, short positions fell by 12,389 contracts to 35,343.
The gold market is now net long 109,763 contracts, jumping 95% from last week. During the survey period, gold prices rallied to $2,150 an ounce. Since last week, April gold futures briefly rallied above $2,200 an ounce, indicating that bullish sentiment has continued to grow.
Hedge funds’ bullish bets on gold are the largest on record; however, the overall net position is the second-biggest on record, just behind the significant short-covering seen in early June 2019.
Commodity analysts at Société Général noted that a record $11.3 billion flowed into the gold market as prices broke above $2,050 an ounce.
“The previous largest flow came in at $9.1bn in 2019,” the analysts said in a note.
Although the size of gold’s rally has surprised many, the breakout has been expected for a while.
“While higher prices have been on the cards for a while, it hit sooner than most analysts expected, with relentless buying that has made this steady breakup/out very different to past ones,” said Nicky Shiels, head of metals strategy at MKS PAMPs in a note Friday.
At the same time, analysts at SocGen noted that although the market has suffered from lackluster demand, there is plenty of potential interest on the sidelines, and they are just waiting for the right momentum.
“Money managers’ relatively bearish positioning – relative to the one-year history – at the start of our period left significant dry powder for the flow observed, which was sufficient to push the commodity into oversold territory according to our OBOS model,” analysts at SocGen said.
The question remains: just how much momentum does gold have left?
Analysts at TD Securities said on Friday that they had exited their tactical long gold position as the market could face higher volatility even as the uptrend remains intact.
“Looking forward, with CTAs now holding their ‘max long’ position size, and Shanghai buying activity having already notably risen over the last weeks, the scope for additional gains will increasingly rely on macro trends,” they wrote. “Fed expectations are now more closely aligned with macro trader positioning, with the alligator jaws closing in from both sides as market pricing for Fed cuts moderated and macro traders were forced to cover their shorts over the last weeks.”
Ole Hansen, head of commodity strategy at Saxo Bank, said that while he is bullish on gold, investors should be sensitive to the market’s current speculative positioning. He noted that these types of traders can reverse their positions very quickly if the market starts to turn.
However, Shiels said that she still sees plenty of upside for gold.
“Gold positioning (COT + ETF) is currently 18mn oz lighter vs average levels seen during past Gold price peaks. The US$ (despite recent weakness) is still 4% stronger, and real/nominal yields are 150bp tighter vs their average levels at past triple top Gold highs (COVID 2020/Russian War 2,” she said.
Analysts have also said that the gold market needs to see renewed investor demand if this bullish momentum is going to last. While speculators have been pouring into precious metals, investors continue to flee gold-backed exchange-traded funds.
Compared to gold’s momentum, silver continues to underperform even as it attracts significant bullish interest.
The disaggregated report showed that money-managed speculative gross long positions in Comex silver futures rose by 7,264 contracts to 40,556. At the same time, short positions fell by 11,631 contracts to 25,744.
The silver market has now pushed into bullish territory and is net long by 14,812. The silver market is seeing the most bullish bets since mid-July 2023, when bullish bets increased by 22,259 contracts.
Some analysts have said that silver’s underperformance in this current rally has been disappointing as silver traditionally outperforms gold on the way up as well as on the way down.
Analysts note that silver is still stuck in a broader range as prices have managed to rally above $24 an ounce. However, other analysts note that while silver may be late to the party, it has plenty of time to catch up.
Fawad Razaqzada, founder of Trading Candles, said it’s only a matter of time before silver takes off, breaking through $30 and pushing to $50 an ounce.
“Silver‘s technical analysis indicates a potential breakout from its 3.5-year consolidation and short-term traders should closely monitor daily price action for potential movements toward $30 or even $50,” he said. “I think it all boils down to silver’s dual uses as a precious metal and an industrial material. This has worked against it, given raised concerns about weaker demand from China for industrial metals. But with signs China is turning things around, and with the government setting an aggressive 5% growth target, we may well see stronger appetite for industrial commodities like copper and silver this year. This could be the year for silver.”
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